Small cap stocks are often a good place to find hidden gems that professional and institutional investors have not yet discovered or are unable to invest in given limitations in their investment criteria.
In his book, "One Up On Wall Street: How to Use What You Already Know to Make Money in the Market", the famous investor Peter Lynch encourages active investors to look at small cap stocks for this very reason.
With that in mind, here are three small cap stocks that could help you beat the professionals:
- Capilano Honey Ltd (ASX: CZZ) packs honey products for sale in the domestic and export markets. It has a return on equity of 16%, a PE ratio of 15, and very little debt with a net debt to equity ratio of 12.5%. The company also has a dividend yield of 2.4% and a payout ratio of 37% which makes its dividend sustainable and allows management to retain profits for growth.
- Collection House Limited (ASX:CLH) provides debt collection and receivables management services in addition to other credit and insolvency related services. Its currently trading at a PE ratio of 9 and has a return on equity of 10%. With the high levels of Australian household debt, the industry has attracted a number of competitors and successful firms will need to ensure that they do not overpay for the acquisition of new debtors' ledgers.
If you are looking for more ideas on companies to invest in, you might want to have a look at these three Aussie companies that are taking over the world.
